It has now been over 13 months since the initial restrictions on businesses were implemented in attempts to reduce the transmission of COVID-19. Some businesses were able to pivot their products and services provided and have actually increased their profits. Other businesses have utilized the many government benefits that have been provided through the Canada Emergency Wage Subsidy (CEWS), Canada Emergency Business Account (CEBA) and Canada Emergency Rent Subsidy (CERS) and have been able to cover basic costs. Unfortunately, many businesses were not eligible for all the benefits and have found themselves unable to continue to operate and burdened with debt.
The structure of your business and whether you personally guaranteed any of the business debt will determine if you have to consider a personal insolvency as well.
Sole proprietorship – you are the business and thus fully responsible for all debts incurred by the business. An analysis of the business and personal assets and liabilities will determine if you can file a personal bankruptcy to relieve you of debt. A proposal may be a viable alternative to allow you to continue to operate the business and compromise all of your unsecured debt.
Partnership – the business is owned by two partners who are personally responsible for all the business debt. As in a sole proprietorship, you must analyze the business and personal assets to determine if an insolvency is the correct debt relief solution.
Corporation – the business is a separate legal entity from the shareholders who are not personally responsible for the debts of the corporation unless they are guaranteed or co-signed. Directors will have a personal obligation for outstanding wages, vacation pay, source deductions and HST owing to Canada Revenue Agency. The corporation can file a bankruptcy and a shareholder may not be responsible for any of the debts.
If your business is struggling, reach out to a Licensed Insolvency Trustee for a free initial assessment. At Taylor Leibow Inc., we will review the financial situation of your business in detail and explain the debt relief solutions of a bankruptcy or a proposal and the effect it may have on you personally so you can make an educated decision on your next steps.
By Kathy Lenart – Insolvency Partner, Licensed Insolvency Trustee
CPA, CA, CIRP
Member and Secretary of the Ontario Association of Insolvency
and Restructuring Professionals (OAIRP)
Canadian Association of Insolvency and Restructuring Professionals (CAIRP)
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